The cost of nursing home care in the United States now averages between roughly $6,800 and $7,700 per month, depending on whether the room is semi-private or private, and rises higher than that in many metropolitan areas. For most families, that figure was never part of the retirement plan. It arrives suddenly, usually alongside a health change in a parent or spouse, and the question becomes very practical very fast: how do we actually pay for this.
The usual answers — Medicare, Medicaid, savings, the house — only go so far. Each has rules, eligibility tests, or trade-offs that surprise families who are looking at them seriously for the first time. There is also one funding source many families have never heard of, even when an aging parent has owned a life insurance policy for thirty years.
This guide walks through where the money for a nursing home stay typically comes from, what each source covers and does not cover, and how a life insurance policy can sometimes play a role most families are not told about.
This content is provided for educational purposes only and does not constitute legal, tax, medical, or financial advice.
The Cost That Catches Most Families Off Guard
According to the federal Administration for Community Living (ACL), the average daily cost of a semi-private room in a nursing home is around $225, which works out to roughly $6,844 per month. A private room averages closer to $253 per day, or about $7,698 per month. Industry surveys generally report similar numbers, with annual averages clustered around $100,000 per year for skilled nursing care.
Those are averages. The actual figure depends on the state, the level of care needed, the type of facility, and whether the resident is in a Medicaid-certified bed or a private-pay bed.
A related surprise: Medicare does not pay for long-term nursing home stays in most circumstances. Medicare covers up to 100 days of skilled nursing facility care under specific conditions, and only after a qualifying hospital stay. Custodial care — the help with bathing, dressing, eating, and other activities of daily living that defines most nursing home stays — is generally not covered by Medicare at all.
That leaves families looking at a different mix of funding sources than they expected.
Read More: The Complete Guide to Understanding Life Settlements
The Funding Sources Most Families Look at First
When a family begins planning for a nursing home stay, the conversation usually moves through a familiar set of options. Each one has limits.
1. Medicare
Medicare covers up to 100 days of skilled nursing facility care per benefit period after a qualifying inpatient hospital stay of at least three days. The first 20 days are typically fully covered; days 21 through 100 carry a daily coinsurance amount that changes each year. After day 100, Medicare coverage ends. As the official Medicare resource on long-term care coverage explains, ongoing custodial care in a nursing home is not a covered benefit.
2. Medicaid
Medicaid is the largest payer of long-term nursing home care in the country. Eligibility is means-tested at the state level, and the rules vary, but Medicaid typically requires that the applicant’s countable assets and monthly income fall under specific thresholds. Many families undertake a “Medicaid spend-down,” reducing countable assets through allowed expenditures, before Medicaid eligibility is established. State Medicaid offices and elder-law attorneys can walk through the specifics.
3. Long-Term Care Insurance
A traditional long-term care insurance policy, purchased years before care is needed, may pay a daily or monthly benefit toward nursing home costs. Coverage limits, elimination periods, and benefit triggers vary widely. Many older adults who could benefit from such a policy today never purchased one, often because the premiums were too high at the time it would have been most useful.
4. Personal Savings and Retirement Accounts
Many families pay for the first weeks or months of nursing home care directly from savings, retirement accounts, or pensions. Withdrawals from tax-advantaged accounts can have tax consequences, and timing matters. A licensed financial professional should review the order in which different accounts are drawn down.
5. Selling the Home or a Reverse Mortgage
Some families sell the family home to fund care. A reverse mortgage may be another option for a spouse who continues to live in the home while the other spouse receives nursing care. Both routes have significant trade-offs and should be reviewed with a real-estate attorney and a financial professional before signing anything.
6. Veterans Benefits and Family Contributions
Veterans who meet eligibility criteria may qualify for the VA Aid and Attendance benefit, which can help offset long-term care costs. Family members sometimes contribute directly. Both are real options, with their own rules and limits.
Read More: Alternatives to a Life Settlement
One Funding Source Many Families Haven’t Heard Of
There is another option that rarely comes up in the first conversation with a hospital social worker, a Medicaid planner, or even a financial advisor. If the person who needs care owns a life insurance policy — particularly a permanent policy that has been in force for many years — the policy itself may be a source of funds.
Most families assume there are only two things a policyholder can do with an unwanted life insurance policy: keep paying premiums, or surrender it back to the carrier for whatever cash surrender value it has built up. There is a third option, and it is the one many families are not told about.
The transaction is formally called a life settlement. In a life settlement, a policyholder sells the life insurance policy to a third-party buyer for a cash payment. The buyer takes over future premium payments and becomes the new owner. When the original insured passes away, the buyer — not the original beneficiaries — receives the death benefit.
The right to sell a life insurance policy in this way is well established. It rests on a U.S. Supreme Court decision from 1911, Grigsby v. Russell, which held that a life insurance policy is the personal property of the owner and may be sold. Today the secondary market operates under state-level regulation modeled on the NAIC Viatical Settlements Model Act, which requires licensed providers and brokers, mandates specific disclosures to the seller, and provides a rescission period after closing.
A written life settlement offer, when extended, is typically more than the policy’s cash surrender value and always less than the death benefit. The actual figure depends on the insured’s age, health, the type and size of the policy, the carrier’s financial strength, and other underwriting factors. There is no formula a family can run at the kitchen table to know in advance what an offer would be.
What matters here is the awareness. Many policies that ultimately end up surrendered for cash surrender value to help pay for a nursing home stay would have been eligible to attract a written settlement offer first. Once a policy is surrendered, that option is gone.
Read More: How the Life Settlement Process Works
When a Life Settlement May Help Cover Long-Term Care Costs
A life settlement is not always the right answer, and it is not available for every policy. The conditions under which it tends to be worth exploring are reasonably specific.
- The insured is age 65 or older.
- The policy is permanent (whole life, universal life, or certain convertible term policies) or is a term policy with conversion privileges still available.
- The policy has a meaningful face amount.
- The insured’s health has changed since the policy was issued.
- The original reason for owning the policy — protecting young children, replacing a working spouse’s income, funding an estate need — no longer applies in the same form.
- The family is actively considering surrender or lapse, and a comparison of all available options is on the table.
None of these conditions, individually or together, mean a specific policy is automatically eligible for a settlement offer. Whether an offer is extended depends on underwriting. They describe the situations under which exploring the option tends to be worth the time.
Read More: Who Qualifies for a Life Settlement?
For a family looking specifically at how to pay for a nursing home, the most useful framing is often this: before surrendering a long-held life insurance policy to help cover care, it can be worth knowing whether the secondary market would offer more for the same policy. Either answer is informative. A written settlement offer can be compared, in dollars, against the surrender quote.
Important Considerations Before Selling a Policy to Pay for Care
Selling a life insurance policy as part of paying for a nursing home stay raises a small number of issues that deserve careful attention.
Effect on Medicaid Eligibility
A lump sum from a life settlement may count as an asset or as income for Medicaid eligibility purposes, depending on timing and state rules. Receiving settlement proceeds can affect whether the insured qualifies for Medicaid-funded long-term care, and may trigger a spend-down requirement. Families considering a settlement specifically because Medicaid is a planned funding source should review the timing carefully with a Medicaid-planning attorney before signing anything.
Tax Treatment
Proceeds from a life settlement may be partially taxable. The federal framework is generally tiered — a portion may be tax-free up to the policy’s cost basis, a portion may be taxed as ordinary income, and a portion may be treated as capital gain depending on the specifics. State tax treatment is layered on top of that. A licensed tax professional should review the situation before any transaction is closed.
Loss of the Death Benefit
Once the policy is sold, the original beneficiaries no longer receive the death benefit from it. If part of the original purpose of the policy still applies — providing for a surviving spouse, leaving an inheritance, paying final expenses — the loss of that protection should be weighed before deciding.
Power of Attorney and Capacity
When the insured is no longer able to make financial decisions, a properly executed durable power of attorney may allow a family member to handle the transaction on their behalf. Capacity and authority should be confirmed in writing before any sale begins.
Comparing Against Other Alternatives
A life settlement is one of several options for a policy that no longer fits. Cash surrender value, reduced paid-up insurance, policy loans, accelerated death benefit riders, and 1035 exchanges all have a place in the comparison. The honest framing of the decision is settlement versus the best available alternative, not settlement versus nothing.
Read More: Can’t Afford Life Insurance Premiums? What to Know Before a Lapse
Frequently Asked Questions
Does Medicare pay for nursing home care?
Medicare covers up to 100 days of skilled nursing facility care per benefit period after a qualifying hospital stay, and only under specific conditions. Long-term custodial care — the help with bathing, dressing, eating, and other activities of daily living that defines most extended nursing home stays — is generally not covered by Medicare.
What is a life settlement, in simple terms?
A life settlement is a regulated transaction in which a policyholder sells a life insurance policy to a third-party buyer for a cash payment. The buyer becomes the new owner of the policy, takes over future premium payments, and receives the death benefit when the original insured passes away. The transaction is legal in most states and is regulated at the state level.
Can you sell a life insurance policy to help pay for a nursing home?
Yes, when the policy and the insured meet the eligibility conditions used by life settlement buyers. The proceeds belong to the seller and may be used for whatever the seller chooses, including nursing home costs, in-home care, medical bills, or other expenses. Eligibility, offer amount, and timing depend on individual circumstances.
Will a life settlement affect Medicaid eligibility?
It may. A lump sum from a life settlement can count as an asset or as income for Medicaid eligibility purposes, depending on timing and state rules. Families relying on Medicaid as a planned funding source should consult a Medicaid-planning attorney before transacting.
What types of life insurance policies can be sold?
Permanent policies — whole life, universal life, and variable universal life — are most commonly involved in life settlement transactions. Some convertible term policies are also eligible, particularly when the conversion option is still available. Term policies without conversion privileges are generally not eligible.
What happens to the original beneficiaries after a life settlement?
Once the policy is sold, ownership transfers to the buyer and the original beneficiaries no longer receive the death benefit from that policy. Any concerns about that loss should be weighed before deciding whether selling is the right choice.
How long does a life settlement take?
From initial inquiry to closing, most life settlement transactions take several months. The process generally includes a preliminary screening, document collection, underwriting by the provider, a written offer, a state-mandated rescission window, and final closing with funds disbursed to the seller.
Sources and Further Reading
- Administration for Community Living — Costs of Care — federal data on average nursing home, assisted living, and home care costs
- Medicare.gov — Long-Term Care Coverage — what Medicare does and does not cover for nursing facility stays
- National Institute on Aging — Paying for Long-Term Care — overview of public and private funding sources
- NAIC Viatical Settlements Model Act (Model 697) — regulatory framework adopted in some form by most states
- Grigsby v. Russell, 222 U.S. 149 (1911) — Supreme Court ruling establishing life insurance policies as assignable property
Final Thoughts
Paying for a nursing home stay is rarely a single-source decision. Most families end up combining Medicare for the covered window, Medicaid once eligibility is established, personal savings to bridge the middle, and sometimes a sold home, a long-term care policy benefit, or a contribution from adult children. The mix depends on the specifics of the situation.
What deserves more attention than it usually gets is the life insurance policy sitting in a drawer. Before that policy is surrendered for whatever the carrier offers, or allowed to lapse because the premium has become too heavy, it can be worth knowing whether the secondary market would offer more. The answer is sometimes no. When it is yes, the difference can be substantial, and the family that knew to ask is the family that benefits.
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Important Notice: This article is provided for educational purposes only. It does not constitute legal, tax, medical, or financial advice. Life settlement eligibility and outcomes depend on individual circumstances, policy structure, underwriting, and applicable regulations. Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal or tax advice.